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Analysis of FMCG Sector

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FMCG OVERVIEW
-Fast Moving Consumer Goods (FMCG) goods, popularly named as consumer packaged goods, play a
vital role as a necessity and as an inelastic product. Rural India accounts for 70% of Indias
population, 56% of National Income, 64% of total expenditure and one third of the total savings. The
Indian FMCG sector is the fourth largest 0sector
the economy with a total market

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(http://ideasmakemarket.com/ximb-xub-placement-report-27th-batch-mba-business-management-
2013-15) size of Rs. 167,100crs. (http://id

-The market is estimated to grow to US$ 100 billion by 2025, according to market research firm advertisi
Nielsen. In the last decade the FMCG sector has grown at an average of 11% a year; in the last five
years, annual growth accelerated to 17%. The FMCG Industry is characterized by a well-established brave-
distribution network, low penetration levels, low operating cost, lower per capita consumption and
intense competition between the organized and unorganized segments. beautifu
-FMCGs are slowly and gradually positioning and deeply penetrating in the fast growing rural
market.The FMCG sector in India continues on a strong growth path with both Urban and Rural
India contributing to its growth. Rural India contributes one third of FMCG sales in India.
-Growth driven by increasing consumption led by rise in incomes, changing lifestyles and favourable
demographics

The following chart shows the composition of FMCG sector across India, with the break-up of
contribution by different categories:

GROWTH PROSPECTS OF FMCG IN RURAL INDIA

-With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG
market is something no one can overlook.
-Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to
the FMCG companies. Better infrastructure facilities will improve their supply chain.
-The Accenture report goes on to state that rural incomes have been growing at more than 7% over
the past few years, helping to account for almost 40% of Indias total consumption of goods and
services.
-FMCG sector is also likely to benefit from growing demand in the market. Because of the low per
capita consumption for almost all the products in the country, FMCG companies have immense
possibilities for growth. And if the companies are able to change the mind-set of the consumers, i.e. if
they are able to take the consumers to branded products and offer new generation products, they
would be able to generate higher growth in the near future.
-It is expected that the rural income will rise in future, boosting purchasing power in the countryside.

0
However, the demand in urban areas would be the key growth driver over the long term. Also,

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increase in the urban population, along with increase in income levels and the availability of new
categories, would help the urban areas maintain their position in terms of consumption. (http://id
-At present, urban India accounts for 66% of total FMCG consumption, with rural India accounting
for the remaining 34%. However, rural India accounts for more than 40% consumption in major advertisi
FMCG categories such as personal care, fabric care, and hot beverages.
-In urban areas, home and personal care category, including skin care, household care and feminine brave-
hygiene, will keep growing at relatively attractive rates. Within the foods segment, it is estimated that
processed foods, bakery, and dairy are long-term growth categories in both rural and beautifu
urban areas.

IMPACT OF FMCG SECTOR IN INDIA:

Employment
-Direct employment is estimated at approximately 6% of turnover, i.e. US$ 1.5 billion4 (Rs. 7,000
crores)
-Approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores.
Thus the sector is responsible for the livelihood of almost 13 million people

Fiscal Contribution
-Cascading Multiple Taxes by the FMCG sector(Import duty, service tax, CST, income tax). 30%
revenue of the sector goes into both direct and indirect taxes. estimated size of $25 billion (Rs.
120,000 crores), that would constitute a contribution to the exchequer of approximately US$ 6.5
billion (Rs. 31,000 crores).

Social Contribution
-Create employment for people with lower educational qualifications. FMCG firms have also
undertaken some specific projects to integrate with upcountry and rural areas for both inputs and for
distribution as well as to fulfil CSR.
SOME EXAMPLES:

ITC Echoupal And Choupal Sagar:- sells both agricultural inputs and daily needs products. ITCs
rural e-network enables farmer connectivity and provides an easy way for farmers to get better
profitability and control through access to timely information.

HULs Shakti Amma Network:- HUL pioneered a rural entrepreneurship model amongst women
who became HUL distributors.

Dabur India:- regularly conducts rural and adult education programs and provides training in rural
areas to facilitate employability.
Contribution to Other Sectors

Agriculture - Its intake of agricultural output as raw material is estimated to constitute roughly 9%
of total turnover for the sector. That would put its total value to agriculture at US$ 2.2 billion7 (Rs.
10,500crores).
0

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Third Party Logistics - The third-party logistics market for the FMCG sector in India has been (http://id
growing at a CAGR of 12% since 2002, and is estimated to be worth US$ 63 million8 (Rs. 300 crores).
It is anticipated to double by 2011, and be worth over US$ 146 million (Rs. 700 crores) by 2012, a advertisi
growth of 211% from 2002.
brave-
We clearly identify that Bihar is the leader in the rural contribution to total FMCG sales, and Tamil
Nadu is the state with the lowest rural contribution. The following graph throws some light on the beautifu
growth of the FMCG retail sector, both, in terms of rural and urban.
[sociallocker]
Ancillary Industries:-

Manufacturing Almost 9-10% of total sectors production is outsourced to contract

manufacturing units taking the total size to $ 1.7 2 billion (Rs. 8,000 Rs. 9,500 crores),
approximately.
Distribution ITC services 1.1 million outlets at an average frequency of three days down to villages
with population of 2,000, and has 1,000 wholesale dealers. Marico reaches 1.6 mln outlets, through
almost 900 direct distributors, 100+ super distributors, catering to almost 2,500 small stockists and
4,600 van markets.
Packaging Industry - The packaging industry for the FMCG sector alone is worth US$ 2.9 billion10
(Rs. 14,000 crores), and is expected to grow faster due to the growth of private label FMCG products.
Media Industry - The media industry has a lot to gain from the FMCG sector. Around 40% of media
industry earnings from advertising (US$ 5 billion) are estimated to come from the FMCG sector, a
contribution of US$ 2 billion (Rs. 9,500 crores).
FMCG SECTOR PERFORMANCE, COMPANY WISE:
BCG ANALYSIS

STATUS COMPANIES

HUL ITC NESTLE DABUR P&G

Cash-Cow AXE, Vaseline, Cigarettes Cerelac Chayawanprash, Ariel, Vicks,
Petroleum Jelly Vatika Amla, Tide
Hajmola

Star Lux, Sun-Silk, Paperbroards/ Nescafe, Real Fruit Juice, Gillette,

Fair& Lovely, Packaging, Maggii Active Fruit Juice, Pantene,
Ponds, Kissan Agri-Business Noodles Dabur Red Head &
Ketchup, Surf- Toothpaste Shoulders,
Excel, Pamper,
Annapurna Atta Whisper

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Question Rin, Pepsodent, Automotive, Milo, Kitkat/ Odomos, Olay

Domex Furniture, Munch, Maggi Sanifresh, Oxylife
(http://id
Financial, Soup, Nestle Facial
Tobacco, Food Butter, advertisi
Nesvita, Nestle
Maggi brave-
Dog Wheel ITC Infotech Nestea, Dabur Gulabari,
Milkybar Burst Fruit Juice beautifu

The following chart shows the top-10 contributing categories to rural markets:
TOP 10 Rural Categories
Category Rural Contribution to Value Sales Growth % vs. year ago FY 2010-11
category sales- FY2010-
11

UR Growth % Urban Rural

Biscuits 41% 23.90% 23.20% 24.90%
Re ned Edible Oil 18% 27.60% 25% 41.10%
Salty Snacks 23% 42% 37.80% 58.30%
Non-Re ned Oils 30% 27.10% 23.60% 36.50%
Toilet Soaps 43% 11.40% 12.10% 10.50%
Washing Powders 46% 10.60% 10.80% 10.40%
Packages Tea 44% 14.40% 17.30% 10.90%
Iodised Salt 59% 16% 11.30% 19.60%
Hair Oil 37% 19.40% 18.10% 21.70%
Shampoos 35% 20.80% 19.50% 23.30%
Source: Nielsen (http://in.nielsen.com/news/20110711.shtml; accessed on 24 September 2011)
The following chart tells us about the market leaders present in various categories, primarily in rural
India.
SOURCE: Ernst & Young, competing for market share in Rural India
COMPANY PRESENCE IN RURAL MARKETS
COMPANY CATEGORY % SALES FROM RURAL
MARKETS
HINDUSTAN UNILEVER HOUSEHOLD 45
PRODUCTS
HERO HONDA TWO- 60
WHEELERS
DABUR PERSONAL 40
PRODUCTS
DISH TV MEDIA 33
TVS TWO- 50
0 WHEELERS

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Next, we look at the state wise break-up of the contribution of various states to the total FMCG sales:
(http://id

advertisi

brave-

beautifu

We clearly identify that Bihar is the leader in the rural contribution to total FMCG sales, and Tamil
Nadu is the state with the lowest rural contribution. The following graph throws some light on the
growth of the FMCG retail sector, both, in terms of rural and urban.

RURAL MARKETING BY FMCG SECTOR

With the urban market saturated, FMCG companies are now targeting the rural markets. In spite of
the income imbalance between urban and rural India, rural holds great potential since 70% of India's
population lives there. Due to the recent government measures like waiver of loans, national rural
employment guarantee scheme and increasing minimum support price, disposable income in rural
India has been rapidly increasing.

However, rural markets present their own sets of problems. These include poor infrastructure,
dispersed settlements, lack of education and a virtually non-existent medium for communication.
Furthermore, retailers cannot be present in all the centres as many of them are so small that it makes
them economically unfeasible.
Hindustan Unilever Limited (HUL) - Shakti
Hindustan Unilever Limited (HUL) to tap this market conceived of Project Shakti. This project was
started in 2001 with the aim of increasing the company's rural distribution reach as well as providing
rural women with income-generating opportunities. This is a case where the social goals are helping
achieve business goals.
0

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The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of HUL (http://id
identifying the uncovered village. The representative of the company meets the panchayat and the
village head and identify the woman who they believe will be suitable as a SA. After training she is advertisi
asked to put up Rs 20,000 as investment which is used to buy products for selling. The products are
then sold door-to-door or through petty shops at home. brave-

On an average a Shakti Amma makes a 10% margin on the products she sells. beautifu

An initiative which helps support Project Shakti is the Shakti Vani program. Under this program,
trained communicators visit schools and village congregations to drive messages on sanitation, good
hygiene practices and women empowerment. This serves as a rural communication vehicle and helps
the SA in their sales.

The main advantage of the Shakti program for HUL is having more feet on the ground.
Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to
tap on its own, besides being a brand ambassador for the company. Moreover, the company has ready
consumers in the SAs who become users of the products besides selling them.

ITC E-Choupal:
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-
based interventions in rural India. As India's 'kissan' Company, ITC has taken care to involve farmers
in the designing and management of the entire 'e-Choupal' initiative. The active participation of
farmers in this rural initiative has created a sense of ownership in the project among the farmers.
They see the 'e-Choupal' as the new age cooperative for all practical purposes.

The e-Choupal model has been specifically designed to tackle the challenges posed by the unique
features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the
involvement of numerous intermediaries, among others.

Appreciating the imperative of intermediaries in the Indian context, 'e-Choupal' leverages

Information Technology to virtually cluster all the value chain participants, delivering the same
benefits as vertical integration does in mature agricultural economies like the USA.

'E-Choupal' makes use of the physical transmission capabilities of current intermediaries -

aggregation, logistics, counter-party risk and bridge financing, while dis-intermediating them from
the chain of information flow and market signals.
INSIGHT:
-From all the above information's it is clear that the rural India can be one of the most feasible market
for the development of the FMCG in INDIA as 70% of the total population resides there.

-Rural market is still an untapped market potential for major players including MNCs who can
0
operate on low margin but at large volumes. Such companies which can sustain with delayed

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breakeven on longer run.

(http://id
-FMCGs companies or marketers make consistent attempts to innovate tools and strategies to
overcome the challenges the face in the business area. advertisi
-Infrastructural development is a major requirement for rural market as still 37% (population less
than 500) of the village are still not connected by roads. brave-
-Corporate India and government bodies alike have made several efforts to bridge the gap between
rural and urban India. Indira Awas Yojna, Rajiv Gandhi Grameen Vidyutikaran Yojna, The beautifu
Mahatma Gandhi National Rural Employement Guarantee Act, The Swarnjayanti Gram Swarozgar
Yojna, Pradhan Mantri Rojgar Yojna, etc are some of the initiatives by the government.
-Companies like Yamaha, Dabur, etc have different marketing strategies and marketing budget
allocation for rural areas. This helps them to target the consumer base that gets easily influenced by
such strategies.

Thus if planned properly and with the use of new strategies and technologies the rural India market
can be captured and a great margin of profit can be earned by the FMCG companies.
(http://draft.blogger.com/blogger.g?blogID=3146458876763128694)

[The article has been written by Priya Dubey & Abhishek Sharma. They are presently pursuing their
MBA from DSIMS, Mumbai.]
[/sociallocker]

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